Economic Update - Resilient, But Slowing Economic Growth - 12/08/2010
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12 August 2010
Economic Update
Resilient, But Slowing Economic Growth
In line with a slowdown in exports, real GDP growth is estimated to have eased to around
8.1% yoy in the 2Q, from +10.1% in the 1Q. Indeed, the slowing growth will likely continue
into the 2H of the year, on the back of a softening in external demand for the country’s
exports on account of a slowdown in the global economy.
Real export growth is likely to have moderated to 12.6% yoy in the 2Q, from +19.3% in
the 1Q. This was the first easing after returning to a positive growth in the 4Q, as global
demand for the country’s exports softened and the exceptionally high growth in exports due
to the low base effect normalised. Domestic demand, underpinned by a resilient consumerspending and a revival private investment, however, would provide some cushion.
On the supply side, the manufacturing sector expanded at a more moderate pace in the 2Q,
as output of the export-oriented industries slackened. Similarly, the services sector is
estimated to have grown at a slower pace, in tandem with a slowdown in trade activities.
Also, construction and agriculture sectors grew at a slower pace. These, however, were
mitigated by a pick-up in mining output during the quarter.
Going forward, the global economy is likely to slow down in 2H 2010, as worldwide stimulus
spending dissipates and austerity measures in some European countries to address fiscal
deficit and debt problems begin to bite. This will likely be compounded by the policy
normalisation and tightening measures introduced in some countries, particularly in Asia, thatwill likely slow down economic activities in these countries. As a whole, we expect the
country’s exports to slow down in 2H 2010, after a strong pick-up in the 1H.
Slower export growth will likely translate into a slower increase in domestic demand, as
business and consumer confidence will likely be impacted. As a result, consumer spending
is envisaged to expand at a slower pace, while business spending will likely slow down. As
a whole, we expect real GDP growth to slow down to 4.5% yoy in 2H 2010, from +9.1%
estimated for the 1H. For the full-year, real GDP will likely expand by 6.8% in 2010, a
rebound from -1.7% in 2009.
Executive Summary
Peck Boon Soon
(603) 9280 2163
Please read important disclosures at the end of this report.
Malaysia
• • • •
PP7
767/09/2010(025354)
MARKETDA
TELINE
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ECONOMIC UPDATE2
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Resilient, But Slowing Economic Growth
The Malaysian economic growth is estimated to have moderated to 8.1% yoy in
the 2Q, from +10.1% in the previous quarter. This was due to a slowdown in
external demand for the country’s exports and as the exceptionally high export
growth normalised. A pick-up in domestic demand, on the back of a resilient
consumer spending and a turnaround in private investment, however, providedsome cushion. The slowdown in economic growth will likely continue into the
2H of the year, as the impact of worldwide fiscal spending dissipates and
austerity measures in some European countries begin to bite. These will likely
be made worse by policies tightening in some countries, particularly in Asia. As
a result, we expect real GDP growth to soften to 4.5% yoy in 2H 2010, from
+9.1% in the 1H. Overall, real GDP is envisaged to recover to +6.8% in 2010,
from -1.7% in 2009.
Real GDP Eased I n The 2 Q, Af te r Reach ing A Peak I n The 1 Q
In line with a moderation in exports and as the exceptionally high export growth
normalised, real GDP growth is estimated to have eased to around 8.1% yoy
in the 2Q, from +10.1% in the 1Q (see Chart 1). Indeed, the slowing growth will
likely continue into the 2H of the year, on the back of a slowdown in the global
economy, as the impact of worldwide fiscal spending dissipates and austerity
measures in some European countries begin to bite. These will likely be made worse
by policies tightening in some countries, particularly in Asia. As a result, we expect
real GDP growth to soften to 4.5% yoy in 2H 2010 , from +9.1% in the 1H.
Compared to the previous quarter, real GDP growth, however, is estimated to have
bounced back to increase by 2.7% qoq in the 2Q, from -2.6% in the 1Q, as the 1Q
was affected by shorter working days as a result of the festive season. Overall, real
GDP is envisaged to recover to +6.8% in 2010, from -1.7% in 2009.
A Slow dow n I n Expo r t s As The Excep t i ona l ly S t rong G rowt h
Norm a l i sed
We estimate that real export growth is likely to have moderated to 12.6%
yoy in the 2Q, from +19.3% in the 1Q. This was the first easing after returning
to a positive growth in the 4Q, due to softer global demand and as the exceptionally
high growth in exports due to the low base effect normalised. The slower growth
was reflected in a softening of demand for the country’s exports from the US and
European Union (EU), which eased to 5.6% and 22.8% yoy respectively in the 2Q
(in nominal terms), from the corresponding rates of +10.6% and +29.1% in the 1Q.
Similarly, exports to China, Hong Kong and Asean slackened to 28.2%, 24.9% and
17.2% yoy respectively in the 2Q, from the corresponding rates of +67.9%, +36.8%
and +38.6% in the 1Q. These were, however, mitigated by a pick-up in exports to
Japan, which strengthened to 33.9% yoy in the 2Q, from +14.0% in the 1Q.
Chart 1Slower Exports And real GDP Growth In
The 2Q
% yoy
-20
-15
-10
-5
0
5
10
15
20
25
00 01 02 03 04 05 06 07 08 09 10
Exports
➤ ➤ ➤ ➤ ➤
➤ ➤ ➤ ➤ ➤
GDP
Domesticdemand
➤ ➤ ➤ ➤ ➤
Chart 2E&E and Non-E&E Exports Slowing Down
But Commodit ies Picking Up
% yoy
-60
-40
-20
0
20
40
60
80
97 00 03 06 09
Non-E&E mfg.goods E&E Commodity
Rea l GDP g rowth i s
estimated to have eased
to around 8.1% yoy in the
2Q, from +10.1% in the
1Q
Economi c g r owth i s
envisaged to slow down
further in 2H 2010
Rea l expo r t g r owth i s
likely to have moderated
to 12.6% yoy in the 2Q,
due t o so f t e r g l oba l
demand and a s t he
exceptionally high export
growth due to the low base
effect normalised
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In terms of products, the slowdown in exports was due to slower increases in the
exports of electrical & electronic (E&E) products and non-E&E manufactured goods
(see Chart 2). These were, however, mitigated by a pick-up in the exports of major
commodity products. The exports of E&E products weakened to 16.1% yoy in the
2Q, from +36.3% in the 1Q and compared with +18.3% in the 4Q. The slowdown
was broad-based, from the exports of electrical machinery & apparatus (largely
semiconductors) to office machines & auto data processing equipment (largely
computers) and telecommunications equipment. The exports of semiconductors andtelecommunications equipment slackened to 20.4% and 17.5% yoy respectively in
the 2Q, from the corresponding rates of +34.6% and +43.5% in the 1Q. The former
was in tandem with a slower growth in worldwide semiconductor sales, which
moderated to 47.1% yoy in the 2Q, from +53.4% in the 1Q and compared with
+10.4% in the 4Q. These were made worse by a slowdown in the exports of
computers, which slowed down sharply to 8.4% yoy in the 2Q, from +36.0% in the
1Q.
In the same vein, the exports of non-E&E manufactured goods moderated to an
estimate of 20.5% yoy in the 2Q, from +29.9% in the 1Q and compared with +5.1%
in the 4Q, indicating that demand for these products are beginning to slow. This was
due to a slowdown in the exports of wood, rubber, paper & pulp, chemical &
chemical, metal products, optical & scientific equipment, toys & sporting goods and
furniture & parts as well as a decline in the exports of transport equipment and non-
metallic mineral products. These were, however, mitigated by a pick-up in the
exports of food and petroleum products. The exports of major commodity products,
on the other hand, strengthened to +40.3% yoy in the 2Q, from +22.3% in the 1Q
and compared with -18.0% in the 4Q. This was reflected in a turnaround in the
exports of liquefied natural gas (LNG), which recorded an increase of 62.3% yoy in
the 2Q, from -13.7% in the 1Q and -43.0% in the 4Q. This was, however, offset
partially by a slowdown in the exports of crude petroleum and palm oil, which eased
to 59.4% and 16.5% yoy respectively in the 2Q, from the corresponding rates of
+69.3% and +44.1% in the 1Q.
St ronger Domest i c Demand Prov ided Some Cush ion
Domestic demand, on the other hand, is estimated to have grown at a faster pace
of 6.9% yoy in the 2Q, compared with +5.4% in the 1Q and +2.8% in the 4Q of
last year (see Table 1). This was on account of a stronger growth in consumer
spending, which is estimated to have held up relatively well at 5.4% yoy in the 2Q,
faster than +5.1% recorded in the 1Q, amidst a drop in confidence and a slowdown
in job market. Indeed, consumption credit strengthened to 10.7% yoy at end-June,
from +9.5% at end-March and compared with +7.7% at end-2009, indicating that
consumers continued to borrow and spend. This was reflected in a pick-up in loans
extended for the purchase of houses and passenger cars as well for credit cards.
Similarly, sales tax collection fell by a smaller magnitude of 2.1% yoy in the 2Q,compared with -29.8% in the 1Q. However, there were signs of weakness in
consumer spending as reflected in a moderation in new car sales, which eased
to 16.5% yoy in the 2Q, from +22.0% in the 1Q. Similarly, the imports of
consumption goods slowed down to 13.2% yoy in the 2Q, from +18.5% in the 1Q,
while commodity prices moderated somewhat during the quarter. Also, service tax
collection slowed down to 12.5% yoy in the 2Q, from +22.2% in the 1Q. Meanwhile,
the Malaysian Institute of Economic Research’s (MIER) consumer sentiment index fell
to 110.4 in the 2Q, from 114.2 in the 1Q (see Chart 3). Despite the decline, the
index was still above the 100-mark, indicating that consumer confidence remained
intact even though they have turned slightly cautious.
The slowdown w as due to
s lower increases in the
exports of E&E and non-
E&E products
The expo r t s o f ma jo r
commod i t y p r oduc t s
p i cked up dur i ng t he
quarter
The exports of non-E&E
manufa c tu r ed goods
modera ted to +20.5%
yoy in the 2Q
Domes t i c demand i s
estimated to have grown
at a fas ter pace, on
account o f a res i l i ent
consumer spending
There were , however ,
s i gns o f weakness i n
consumer spending
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2007 2008 2009 2009 2010 2010(f) 2011(f)
2Q 3Q 4Q 1Q 2Q(e)
% Growth in Real Terms
GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0
Consumption:
Private 10.5 8.5 0.7 0.3 1.3 1.6 5.1 5.4 5.0 6.0
Public 6.6 10.7 3.1 1.5 9.4 0.7 6.3 1.8 -1.5 4.5
Total investment 9.4 0.7 -5.6 -9.6 -7.9 8.2 5.4 13.3 9.0 8.6
Private 13.1 1.0 -17.2 n.a n.a n.a n.a n.a 6.9 12.7
Public 5.3 0.5 8.0 n.a n.a n.a n.a n.a 10.8 4.9
Goods & services:
Exports 4.1 1.6 -10.4 -17.9 -12.9 6.0 19.3 12.6 11.4 7.9
Imports 5.9 2.2 -12.3 -19.4 -13.2 7.0 27.5 21.9 17.2 10.5
Agg.domestic demand 9.6 6.8 -0.5 -2.2 0.1 2.8 5.4 6.9 4.9 6.4
(f): RHBRI's forecasts (e): RHBRI’s estimates
Table 1GDP By Demand Aggregate (2000=100)
Chart 3Consumer Conf idence Turning Weaker
Index
0
20
40
60
80
100
120
140
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
MIER
In the same vein, private investment is estimated to have turned around and
recorded a positive growth in the 2Q even though business confidence has weakened
somewhat. As it stands, the imports of capital goods rebounded to +26.5% yoy in
the 2Q, from +9.6% in the 1Q and compared with +18.4% in the 4Q, suggesting that
businesses continued to spend, albeit cautiously. Similarly, corporate loan growth
strengthened in June, on the back of a pick-up in business loans which grew at a
faster pace of 7.2% yoy in June, compared with +4.3% in March. This was, however,
offset partially by a decline in loans extended for small- and medium-scale
enterprises (SMEs), which fell by 0.3% yoy in June, compared with +3.1% in March.
The pick-up in business loans was reflected in a pick-up in loans extended to
agriculture; manufacturing; wholesale, retail trade, hotel & restaurant; construction;
transport, storage & communication; finance, insurance & business; and education
& healthcare sectors.
Public investment, however, is estimated to have slowed down to 11.0% yoy in
the 2Q, from +11.9% in the 1Q, in line with a slowdown in the disbursement of
government funds. Nevertheless, fixed capital formation is estimated to have
grown at a faster pace of 13.3% yoy in the 2Q, compared with +5.4% in the 1Q,
due to a turnaround in private investment. The public consumption expenditure,
however, is estimated to have slowed down during the quarter, after a strong pick-
up in the previous quarter.
Pr iva te investment i s
estimated to have turned
around and recorded a
positive growth in the 2Q
Pub l i c i nves tment i s
estimated to have slowed
down but f i xed cap i ta l
f o rma t i on p i cked up
during the quarter
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M ore M odera te I nc reases I n M anu factu r i ng And Se rv i ces Act i v i t i es
On the supply side, value added in the manufacturing sector is estimated to
have moderated to 15.2% yoy in the 2Q , from +16.9% in the 1Q and after
returning to a growth of 5.3% for the first time in a year in the 4Q (see Table 2).
As it stands, output of the export-oriented industries moderated to 17.4% yoy in
May, after reaching a high of +21.3% in March. This was on account of a moderation
in the production of E&E products; chemical; wood & wood products; rubberproducts; and paper, pulp & board products. These were made worse by a decline
in the production of textiles & apparels. These were, however, mitigated by a pick-
up in the production of petroleum products during the period. A pick-up in output
of domestic-oriented industries, which strengthened to 23.3% yoy in May, from
+18.2% in March, however, mitigated the slowdown. This was due to a pick-up in
the production of construction-related materials and beverages as well as a rebound
in the production of food.
Table 2GDP By Industr ial Origin At 2000 Prices
2007 2008 2009 2009 2010 2010(f) 2011(f)
2Q 3Q 4Q 1Q 2Qe% Growth in Real Terms
GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0
Agriculture 1.3 4.3 0.4 0.4 -0.4 5.9 6.8 2.0 3.2 2.8
Mining 2.0 -2.4 -3.8 -3.5 -3.6 -2.8 2.1 2.5 2.1 2.0
Manufacturing 2.8 1.3 -9.4 -14.5 -8.6 5.0 16.9 15.2 11.2 8.0
Construction 7.3 4.2 5.8 4.5 7.9 9.3 8.7 6.8 4.8 2.8
Services 10.2 7.4 2.6 1.7 3.4 5.2 8.5 6.5 6.1 4.8
(f) : RHBRI's forecasts (e): RHBRI’s estimates
Similarly, the services sector is estimated to have grown at a more
moderate pace of 6.5% yoy in the 2Q, compared with +8.5% in the 1Q. This was
due to a slowdown in services activities in utilities, transport & storage, finance &
insurance, real estate & business and communications sub-sectors, in tandem with
a slower increase in trade activities. In the same vein, activities in accommodation
& restaurants sub-sector are likely to have weakened due to a slowdown in tourist
arrivals. Activities in the wholesale & retail trade sub-sector, however, are likely to
have held up relatively well during the quarter.
Also, construction activities are estimated to have moderated somewhat to
6.8% in the 2Q, from +8.7% in the 1Q and after hitting a 13-year high of +9.3%
in the 4Q, in line with a slower increase in the Government’s stimulus spending andhousing activities. As it stands, the issuance of new permits in selling houses and
housing approvals slowed down to 15.8% and 7.4% yoy respectively in the 2Q, from
the corresponding rates of +32.0% and +13.9% in the 1Q. Similarly, the renewal
of permits in selling houses fell by a larger magnitude of 22.6% yoy, compared with
-19.4% during the same period, indicating that construction activities in residential
housing segment have moderated somewhat.
In the same vein, agriculture output is estimated to have slowed down to 2.0%
yoy in the 2Q, from +6.8% in the 1Q, as palm oil production fell and growth in the
previous quarter was boosted by the low base effect. As a result, the production
of palm oil contracted by 0.4% yoy in the 2Q, compared with +1.9% in the 1Q and
+6.4% in the 4Q of last year. This was made worse by a slowdown in rubber output,which eased to 9.1% yoy in April-May, from +34.6% in the 1Q, while the production
of saw logs slipped into a contraction of 3.0% yoy, compared with +57.6% during
the same period. Similarly, the production of cocoa fell by a larger magnitude during
the quarter.
The manufacturing sector
growth i s es t imated to
have softened in the 2Q,
in line with a slowdown in
ou tpu t o f t he expo r t -
oriented industries
Serv i ces ac t iv i t i es a re
estimated to have grown
at a more moderate pace,
i n t andem w i t h a
s l owdown i n t r ade
activities
Ag r i cu l t u r e ou tpu t i s
estimated to have slowed
down due mainly to a drop
in palm oil production
Const ruct ion sector
g rowth modera t ed
somewhat on account of a
s l ower i nc r ea se i n
government spending
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Mining output, however, is estimated to have picked up to 2.5% yoy in the 2Q,
from +2.1% in the 1Q. This was on the back of a stronger increase in LNG output,
which strengthened to 10.0% yoy in the 2Q, from +8.8% in the 1Q and +0.4% in
the 4Q. A larger drop in the production of crude oil, which fell by 3.1% yoy in the
2Q, compared with -2.5% in the 1Q, however, offset part of the gain.
Globa l Econom ic Grow th W i l l Li ke ly Modera t e I n The 2H
Going forward, the global economy is likely to slow down in 2H 2010 , as
worldwide stimulus spending dissipates and austerity measures in some European
countries to address fiscal deficit and debt problems begin to bite. This will likely
be compounded by the policy normalisation and tightening measures introduced in
some countries, particularly in Asia, that will likely slow down economic activities in
these countries. As it stands, signs of a slowdown in the global economy are
becoming more apparent. Indeed, global manufacturing and services activities
softened for the third consecutive month in July (see Chart 4). In the same vein,
the OECD composite leading indicator ’s 12-month rate of change has peaked in
March and it moderated for three consecutive months to 6.7% in June, from +8.3%
in May (see Chart 5), indicating that OECD economies are likely to ease in the
months ahead.
Chart 4Global Manufactur ing And Serv ices
Act iv i t ies Heading South
Index P M IServices
➤ ➤ ➤ ➤ ➤
P MIManufacturing
➤ ➤ ➤ ➤➤
30
35
40
45
50
55
60
65
05 06 07 08 09 10
Chart 5OECD Composite Leading
Indicator Points To Slower EconomicGrowth Ahead
% 12-mth annualised rate of change
-20
-15
-10
-5
0
5
10
15
20
25
30
00 01 02 03 04 05 06 07 08 09 10
Total OECD Japan US Euro area China
Despite the weakness, we do not expect the global economy to fall into a
double-dip even though there is a risk of a sharper-than-expected
slowdown, given that policy normalisation and tightening remain gradual. Also, the
US economic recovery is becoming more sustainable, as its recovery, which started
from the government stimulus and inventory rebuilding, has now spread to consumer
spending. In Europe, we expect the sovereign debt problems to be manageable
despite the lingering concerns, following the announcement of an emergency
stabilisation loan of €750bn and the €110bn rescue package for Greece. Indeed,
Spain, Portugal, Ireland and Greece have successfully sold their bonds since 13 July
and the results of the stress test also helped as well. Nonetheless, the austerity
drives in Europe will likely affect Malaysia’s exports to some extent given that 10.7%
of the country’s exports went straight to Europe. There would be indirect impact as
well since 13% of Malaysia’s exports go to China, and Europe is China’s largest
export market (accounting for 19.7% of its total exports). Furthermore, the ringgit
has appreciated by 7.8% year-to-date, the sharpest in the region. As a whole, we
expect the country’s real exports to slow down to 7.6% yoy in 2H 2010, from
+15.9% in the 1H, bringing the full-year growth to +11.4% compared with -10.4%
in 2009.
Min i ng ou tpu t bounced
back during the quarter
due to a stronger increase
in LNG output
The g l oba l economy i s
likely to slow down in the
2H
Despite the weakness, we
do not expect the global
economy to fa l l i n to a
double-dip even though
there i s a r i sk o f a
s ha r p e r - t ha n - exp e c t ed
slowdown
We expect the country’s
real exports to slow dow n
in the 2H 2010
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In the US, the economy is showings signs of moderating, after recording a slower
annualised rate of +2.4% in the 2Q. As it stands, retail sales fell by 0.5% mom in
June, the second straight month of decline, while personal consumption expenditure
grew at the slowest pace in five months during the month (see Chart 6). Similarly,existing home sales declined for the second consecutive month in June and housing
starts fell to the lowest level in eight months in June. This suggests a renewed
weakness in the housing sector, after the expiration of the tax incentive in April and
its recovery will likely be slow in the months ahead. Also, private employers added
fewer workers to payrolls in May-July, compared with March-April, indicating that
employers have turned cautious as well. Elsewhere, manufacturing activities slowed
down for the third straight month in July, while services activities bounced back
during the month but was off the peak recorded in May (see Chart 7). As a whole,
the US economy is projected to grow at a more moderate pace of 2.8%
in 2H 2010, compared with +3.1% in the first half, bringing the full-year growth to
around +3.0%, a rebound from -2.4% in 2009.
Similarly, the austerity drives will likely hurt some of the countries such as Spain,
Portugal, Ireland and Greece in the Euroland. Still, Germany, which could leverage
on the weak euro to export, would provide some cushion. As it stands,
manufacturing and services activities in the region rebounded in July (see Chart 8),
after a slowdown in June, while business and consumer confidence improved
somewhat in July. These suggest that the Euroland economy will unlikely fall off
the cliff but the recovery will likely be slow in the months ahead. In the same vein,
the Japanese economy will likely slow down in the 2H of the year, on the back of
a slowdown in global demand for the country’s exports. As it stands, Japan’s exports
slowed down for the fourth consecutive month in June and unemployment is trending
up in recent months (see Chart 9).
Chart 8Euro land: Manufactur ing And Serv ices
Act iv i t ies Ho lding Up
IndexP M I
Services
30
35
40
45
50
55
60
65
05 06 07 08 09 10
PMI Manufacturing ➤ ➤ ➤ ➤ ➤
➤ ➤ ➤ ➤ ➤
Totalexports(LHS)
Chart 9Japan : Weaking Exports And Rising
Unemp loyment
% yoy % of labour force
-60
-40
-20
0
20
40
60
05 06 07 08 09 10
0
1
2
3
4
5
6Unemployment
rate(RHS)
➤ ➤ ➤ ➤ ➤
➤ ➤ ➤➤➤
Chart 6US : Consumer Spending Losing
Momentum But Wil l Likely Be Resi l ient
(Personal consumption expenditure)% annualised
-4
-3
-2
-1
0
1
2
3
4
5
2005 2006 2007 2008 2009 2010
Chart 7US : Manufacturing Activ it ies Slowing Down,While Services Holding Up But Off The Peak
Index
30
35
40
45
50
55
60
65
70
05 06 07 08 09 10
ISMManufacturing
➤ ➤ ➤ ➤ ➤
ISMServices
➤ ➤ ➤ ➤ ➤
The Euroland’s economic
recovery will likely be slow
and t he Japanese
economy will likely be hurt
by a slowdown in exports
The US economy i s
projected to grow at a
more moderate pace of
2.8% in 2H 2010
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ECONOMIC UPDATE8
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In China, manufacturing activities slowed down to the slowest pace in more than a
year in July, while industrial production headed south for the third straight month and
it eased to 13.7% yoy in June, indicating industrial activities are slowing down (see
Chart 10). Similarly, retail sales grew at the weakest pace of 18.3% in three months
in June and fixed-asset investment in urban areas slowed down to 25.5% yoy in
January-June, from the corresponding period of +33.6% in 2009. This suggests that
China’s domestic demand is moderating, in tandem with the government’s tightening
measures to cool down its property market. As a whole, the key economic indicatorssuggest that China’s economy is likely to slow down further in the 2H of the
year, after recording a more moderate growth of +10.3% yoy in the 2Q.
Meanwhile, demand for E&E products, which accounts for about 45% of Malaysia’s
total exports in 2009, will likely be softer in the 2H of the year , in line with a
slowdown in global economic activities. As it stands, worldwide semiconductor sales
eased to 42.6% yoy in June, from +48.6% in May and after reaching a high of +58.4% in March. This suggests that a sharp rebound in sales due to a spike-up
in demand and inventory rebuilding is normalising.
Real GDP Grow th To Sof t en I n The 2H
A softer export growth will likely translate into slower increases in jobs and
production, which will likely affect consumer spending and business investment as
well. As a result, we envisage domestic demand to ease to 3.8% yoy in 2H
2010, from +6.1% in the 1H , bringing the full-year growth to 4.9% in 2010, a
rebound from -0.5% in 2009. This will likely be reflected in a more moderate
increase in consumer spending, which is projected to grow at a slower pace of
4.7% yoy in the 2H versus +5.3% in the 1H. Already, consumer spending is showing
signs of weakness as reflected in a moderation in new car sales, the imports of
consumption goods and service tax collection in the 2Q. Also, the Malaysian Institute
of Economic Research’s (MIER) consumer sentiment index fell to 110.4 in the 2Q,
from 114.2 in the 1Q, indicating that consumers have turned cautious. Consumer
spending, however, will likely be resilient on the back of high savings and rising
consumerism. For the full-year, consumer spending, however, will likely bounce back
to +5.0% in 2010, from +0.7% in 2009.
Similarly, the private investment is projected to soften to 6.4% yoy in 2H 2010,
from +7.3% in the 1H, as businesses turn cautious when excess production capacity
builds up. As a result, businesses will not be in a hurry to invest and they would
delay their investment. As it stands, MIER’s business conditions index fell by 4.4
percentage points to 119.6 in the 2Q. In the same vein, public investment is
projected to expand at a slower pace of 10.2% yoy in the 2H of the year, compared
with +11.5% in the 1H, as the government stimulus spending fizzles out.
We env i sage domes t i c
demand t o ea se i n 2H
2010, on the back of a
s l owdown i n consumer
spending
The private investment is
projected to soften as well
in the 2H of the year
Demand for E&E products
will l ikely be softer in the
2H of the year, in line with
a s l owdown i n g l oba l
economic activities
The key economi c
ind i ca tors suggest tha t
China’s economy is likely
to soften in the 2H
Chart 10China : Industr ial Act iv it ies Slowing Down
Index% yoy
➤ ➤➤ ➤ ➤
I P I(LHS)
PMI mfg.(RHS)
0
5
1 0
1 5
2 0
2 5
0 5 0 6 0 7 0 8 0 9 1 0
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
➤ ➤➤ ➤ ➤
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Consequently, we expect fixed capital formation to ease to 8.4% yoy in 2H 2010,
from +9.5% in the 1H, bringing the full-year growth to 9.0% during the year,
compared with -5.6% in 2009. Public consumption, on the other hand, will likely
contract by 5.4% yoy in the 2H of the year, compared with +4.0% in the 1H, on the
back of a fiscal consolidation. As a whole, the public sector expenditure will exert
a less expansionary impact on the economy. Still, we expect real GDP growth
to slow dow n to 4.5% yoy in 2H 2010, from +9.1% in the 1H. For the full-year,
real GDP will likely expand by 6.8% in 2010, a rebound from -1.7% in 2009.
We expec t r ea l GDP
growth to slow down to
4.5% yoy in 2H 2010, from
+9.1% in the 1H
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